4 Things Brand Marketers Should Watch in Walmart's Earnings

When Walmart reports first-quarter earnings May 18, it could yield plenty of signs about what's really happening in the market and how the giant retailer's reactions will affect the broader world of brands. Here are four big questions brand marketers should hope get answered in Walmart's pre-recorded earnings call.

Can Walmart continue the positive momentum? Despite growing slower than Amazon -- like just about everyone else -- Walmart has been improving top-line results over the past two years. It delivered an upside surprise on comparable-store sales growth the prior quarter, its fiscal fourth. This was driven largely by supermarket-size Neighborhood Markets and more aggressive pricing. Walmart's beat came even as grocery-price deflation (fueled in part by Walmart) ended rival Kroger Co.'s 13-year streak of quarterly comp growth. But last quarter was tougher for everyone.

Was Walmart a victim or a cause? Many retailers -- and marketers who supply Walmart -- have sung the blues about last quarter. Walmart's results should show whether it was a fellow victim or a cause. It's likely both.

Walmart's more aggressive pricing -- aimed particularly at fending off Amazon and hard discounter Aldi -- has caught other retailers in the crossfire, particularly Kroger and Dollar General.

But rising gas prices -- up around 20% from a year ago -- also hurt consumer spending elsewhere. And Walmart is particularly vulnerable here. It's underrepresented in big urban markets, where people use mass transit, and overrepresented everywhere else, where people drive more.

How big of a problem will Walmart be for brands? Suppliers like Procter & Gamble Co., Unilever and Kimberly-Clark all cited retailer inventory reductions as a cause for weak U.S. results last quarter. That cost-cutting "retailer" was likely Walmart. Its comparable-store inventory declined 7.2% in the fiscal fourth quarter despite 1.8% comp sales growth. Thursday's results will show to what extent the trend continued, and maybe if it will abate as brand marketers have projected.

Suppliers are also wary of being casualties in Walmart's war with hard discounters. These include Aldi, which already has 1,600 stores and plans another 650 by the end of next year, and its German compatriot Lidl, which also has U.S. expansion plans and has been reported to be scouting sites from the Mid-South to Cincinnati. Hard discounters sell mainly private labels, allowing them to undercut Walmart on price, which in turn pressures Walmart to expand its own private labels and push brands to lower prices.

And what about that war with Amazon? Walmart e-commerce actually grew faster than Amazon in the fourth quarter. Much of that 29% growth came from the August acquisition of Jet.com. But even legacy Walmart.com has been doing better under Jet.com-turned-Walmart E-Commerce CEO Marc Lore -- adding 0.4 percentage points to Walmart's U.S. comp growth in the fiscal fourth quarter vs. 0.3 points the prior year.

Thursday's results will show whether that momentum continued into the new year amid distractions from a slew of smaller e-commerce buys, including Modcloth, Shoebuy and Moosejaw.

Walmart is still more than three times bigger than Amazon in the U.S. But its e-commerce sales are only around a sixth of Amazon, which dominates e-commerce to an extent Walmart never did brick-and-mortar. If the two retailers keep growing at last year's rates, Amazon will be bigger than Walmart in the U.S. by 2025.

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Jack Neff

Jack Neff, editor at large, covers household and personal-care marketers, Walmart and market research. He's based near Cincinnati and has previously written for the Atlanta Journal Constitution, Bloomberg, and trade publications covering the food, woodworking and graphic design industries and worked in corporate communications for the E.W. Scripps Co.